Azure Dynamics reports second quarter 2007 results

    TORONTO, Aug. 14 /CNW/ - Azure Dynamics Corporation (TSX: AZD & LSE:   ADC)
("Azure" or the "Company") a leading developer of hybrid electric and electric
powertrains for commercial vehicles, today announced its financial results for
the three and six-month period ended June 30, 2007. The Company also provided
an update on corporate and product development activities in the quarter.

    2007 Second Quarter Highlights

    -   Appointment of Scott T. Harrison, former Group President at Hayes
        Lemmerz, as Chief Executive Officer;
    -   Appointment of James J. Padilla, former President and COO of Ford
        Motor Company, to Board of Directors;
    -   Agreement with FedEx Express to develop hybrid-electric powertrains
        for their commercial delivery fleet;
    -   $7 million supply agreement with Electro Autos Eficaces ("EAE") of
        Mexico to convert 1,000 electric vehicle systems for Mexico City's
        municipal automobile fleet;
    -   Consolidation of operations, with planned strategic relocation of
        Toronto head office to the Detroit/Windsor area and closure of
        Kenilworth office and service centre in the UK.

    "During the quarter, we made strong progress in advancing the
commercialization of our products, with major customer wins in both our hybrid
commercial fleet and electric vehicle market segments. FedEx Express, along
with Purolator Courier Ltd., are our early lead customers for our Ford E-450
hybrid commercial vehicle. Our agreement with EAE to convert 1,000 municipal
gasoline vehicles using our existing electric drive system technologies also
represents a significant market development for us and includes the potential
for us to supply a broader range of products for other applications in the
future," said Scott T. Harrison, Chief Executive Officer of Azure Dynamics.
    "In terms of our operational developments, with the increasing scope of
our work with Ford, as well as other leaders in the automotive industry, we
believe the relocation of our head office to the Detroit, Windsor area, is a
natural next step for Azure as we focus on building our relationships with key
industry partners," continued Mr. Harrison. "The appointment of Mr. James
Padilla to our Board of Directors and the appointment of Curt Huston as our
new Chief Operating Officer will significantly enhance our business
development initiatives."

    Financial Results

    Revenue for the second quarter of 2007 totalled $0.6 million compared to
$1.2 million in the second quarter of 2006. For the six months ended June 30,
2007, revenue totalled $0.7 million compared to $2.4 million in the same
period a year ago. The decrease in revenue for the three and six months ended
June 30, 2007 was due to decreased activities in funded engineering contracts
in the Boston operation, as the Company is now focussed on its core production
programs. Net loss for the second quarter of 2007 was $6.9 million, or
$(0.03) per share, compared to a loss of $4.8 million or $(0.03) per share in
the second quarter of 2006. Net loss for the six months ended June 30, 2007
was $13.4 million, or $(0.07) per share, compared to a loss of $9.4 million or
$(0.06) per share in the same period a year ago. The increased net loss for
the three and six months ended June 30, 2007 is primarily due to lower margin
contributions due to lower revenues and higher levels of engineering and
operational activities related to the development of the Ford P1 parallel
hybrid vehicle, ramp-up of the G1 series production, and enhancement of system
    Before contributions, the Company's engineering, research and development
("R&D") expenses in the quarter totalled $4.2 million (including $2.4 million
in product development costs), compared to $2.7 million for the same period in
2006 (including $1.3 million in product development costs). For the first half
of 2007, the Company's engineering and R&D expenses totalled $8.4 million
(including $5.1 million in product development costs), compared to
$5.4 million in the first half of 2006 (including $2.9 million in product
development costs). During the quarter, the Company continued to focus on the
development of its P1 program and continued the final engineering and
production activities associated with the G1 delivery vans and shuttle bus.
    As of June 30, 2007, the Company's net cash and cash equivalents totalled
$16.8 million, and working capital totalled $19.6 million, compared to cash
and cash equivalents of $20.6 million, and working capital of $26.1 million,
as at March 31, 2007, and cash and cash equivalents of $27.2 million, and
working capital of $32.5 million, as at December 31, 2006.


    During the quarter, the Company appointed Scott T. Harrison, former Group
President at Hayes Lemmerz, as Chief Executive Officer. Additionally, D.
Campbell Deacon, retiring Chief Executive Officer, became Chairman of the
Board of Directors and Thomas N. Davidson, outgoing Chairman, retired from the
Board of Directors. These changes were made to ensure that the Company has the
appropriate skills to successfully transition from the development stage to
commercial production. Subsequent to the end of the quarter, it was announced
that David E. Deacon, Executive Vice President and Deputy Chairman, and
Gregory P. Francis, President and Chief Operating Officer, will resign their
positions. Mr. Deacon will continue to serve as a non-executive Director of
the Board and Mr. Francis will support the Company's strategic development in
an advisory capacity. Guy Pearson, Vice President, Engineering (Vancouver)
also resigned effective July 9, 2007. Mr. Pearson's responsibilities have been
assumed by Ricardo Espinosa, Vice-President, Engineering (Boston). Further, on
August 13, 2007, the Company appointed Curt Huston as Chief Operating Officer.
Mr. Huston has extensive experience in automotive industry sales, marketing
and global supply chain management and will enhance Azure's ability to build a
best-in-class supply chain by attracting industry talent and building the
necessary supply chain processes.
    In an effort to reduce costs as well as ease interaction with major
suppliers and strategic partners, the Company will established a new corporate
head office and development center in the heartland of the North American
automotive industry. The new location will be selected to ensure the Company
can leverage its relationship with Ford and capitalize on the significant
opportunities in the mid-sized truck market. The office in Toronto, as well as
the Kenilworth facility in the UK were closed in July and May of 2007,

    Product Developments

    The main developments in core product lines for the second quarter of
2007 included the following:

    G1 Series (7,500 to 16,000 lbs. gross vehicle weight, "GVW")

    -   Delivered first two G1 hybrid shuttle buses (the CitiBus Hybrid
        Senator HD or "CitiBus") to StarTrans in June 2007. The remaining
        seven buses are expected to be delivered during July and August 2007.

    -   Commenced Altoona testing (process required to qualify for federal
        capital subsidies) on the CitiBus.

    P1 Parallel (10,000 - 19,000 lbs. GVW)

    -   Advanced the P1 parallel hybrid vehicle through the initial concept
        phase including the build and testing of alternative design
        prototypes. The selected concept is now undergoing detailed design
        work which will include the building, testing and optimizing of
        further design prototypes.

    -   Signed agreement with FedEx Express for the supply of a P1 E-450
        demonstration vehicle. Once the development phase is completed, FedEx
        Express has committed to purchase a minimum of 20 pre-production
        parallel hybrid-electric Ford E-450 delivery vans, which are expected
        to be delivered by May 2008.

    -   On August 2, 2007, selected Utilimaster as the primary assembly and
        integration partner for the hybridized E-series chassis.

    -   On August 14, 2007, received an order from Purolator Courier Ltd. for
        105 P1 E-450 vehicles. These vehicles are expected to be delivered by
        the end of 2008.

    Electric Power Products and other production:

    -   Built initial prototype of the LEEP ("Low Emission Electric Power")
        system with a refrigerated truck body supplied by Kidron. The first
        customer demonstration unit is in progress. The Company expects to
        launch pre-production volumes of the LEEP system before the end of

    -   Signed supply agreement with Electro Autos Eficaces of Mexico for
        1,000 electric drive systems for integration into the Nissan Tsuru
        platform, for use in Mexico City's municipal fleet. During the
        quarter, the first converted vehicle was completed and unveiled at
        the International Electric Vehicle Forum. Azure expects to complete
        the conversion of 1,000 vehicles over the following 18 months.

    The Company's fiscal 2007 second quarter financial statements and MD&A
are available at or on the Company's website at

    About Azure Dynamics

    Azure Dynamics Corporation (TSX: AZD) (LSE:   ADC) is a world leader in the
development and production of hybrid electric and electric components and
powertrain systems for commercial vehicles. Azure is strategically targeting
the commercial delivery vehicle and shuttle bus markets and is currently
working internationally with various partners and customers. The Company is
committed to providing customers and partners with innovative, cost-efficient,
and environmentally-friendly energy management solutions. For more information
please visit

    The TSX and LSE Exchanges do not accept responsibility for the adequacy
    or accuracy of this release.

    Forward-looking Statements

    This press release contains forward-looking statements. More
particularly, this press release contains statements concerning Azure's
business development strategy, projected commercial revenues and product
    The forward-looking statements are based on certain key expectations and
assumptions made by Azure, including expectations and assumptions concerning
achievement of current timetables for development programs, target market
acceptance of Azure's products, current and new product performance,
availability and cost of labour and expertise, and evolving markets for power
for transportation vehicles.
    Although Azure believes that the expectations and assumptions on which
the forward-looking statements are based are reasonable, undue reliance should
not be placed on the forward-looking statements because Azure can give no
assurance that they will prove to be correct. Since forward-looking statements
address future events and conditions, by their very nature they involve
inherent risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors and risks. These
include, but are not limited to, the risks associated with Azure's early stage
of development, lack of product revenues and history of losses, requirements
for additional financing, uncertainty as to commercial viability, uncertainty
as to product development and commercialization milestones being met,
uncertainty as to the market for Azure's products and unproven acceptance of
Azure's technology, competition for capital, product market and personnel,
uncertainty as to target markets, dependence upon third parties, changes in
environmental laws or policies, uncertainty as to patent and proprietary
rights, availability of management and key personnel, and acquisition
integration risk. These risks are set out in more detail in Azure's annual
information form which can be accessed at
    The forward-looking statements contained in this press release are made
as of the date hereof and Azure undertakes no obligation to update publicly or
revise any forward-looking statements or information, whether as a result of
new information, future events or otherwise, unless so required by applicable
securities laws.

                                                  Azure Dynamics Corporation
                                             (A Development Stage Enterprise)
                                                 Consolidated Balance Sheets
                                                        (Stated in Thousands)

                                           June 30  December 31      June 30
                                              2007         2006         2006
    As at                               (unaudited)    (audited)  (unaudited)
                                             $            $            $

      Cash and cash equivalents             16,847       27,192       10,747
      Accounts receivable                      319        3,394        1,130
      Contributions receivable                 608        1,274          639
      Inventory and related prepayments      5,433        3,821        4,328
      Prepaid expenses                         890          831        1,017
                                            24,097       36,512       17,861

    Restricted cash                            843          699          670
    Property and equipment                   5,851        5,614        5,789
    Other assets                                 -            -           44
    Intangible assets, net of
     amortization (Note 3)                   9,869       10,542       11,411
    Goodwill (Note 3)                        2,932        2,932        2,932

                                            43,592       56,299       38,707



      Accounts payable and accrued
       liabilities                           3,367        2,814        3,043
      Customer deposits & deferred revenue     939        1,046          912
      Current portion of notes
       payable (Note 4)                        194          212        2,427
                                             4,500        4,072        6,382

      Deferred revenue                         906          943          986
      Notes payable                          2,080        2,294            -
                                             2,986        3,237          986

    Shareholders' equity
      Share capital (Note 5)               112,822      112,803       82,178
      Contributed surplus (Note 5)           4,336        3,816        2,768
      Deficit                              (81,052)     (67,629)     (53,607)
                                            36,106       48,990       31,339

                                            43,592       56,299       38,707


                                                  Azure Dynamics Corporation
                                             (A Development Stage Enterprise)
                           Consolidated Statements of Operations and Deficit
                                                        (Stated in Thousands)

                                      For the                   For the
                                   three months               six months
                                   ended June 30             ended June 30
                                    (unaudited)               (unaudited)
                                 2007         2006         2007         2006
    --------------------- ---------------------------------------------------
                                  $            $            $            $

    Revenues                      593        1,205          749        2,353

    Cost of sales                 603        1,129          670        1,972

                          ------------------------- -------------------------
    Gross Margin                  (10)          76           79          381
                          ------------------------- -------------------------

      Engineering, research,
       development and related
       costs, net               3,921        2,320        7,869        4,737
      Selling and marketing       863          823        1,694        1,548
      General and
       administrative           2,157        1,935        4,122        3,752
                          ------------------------- -------------------------
    Total expenses              6,941        5,078       13,685       10,037

                          ------------------------- -------------------------
    Loss from operations       (6,951)      (5,002)     (13,606)      (9,656)

      Interest and other
       income, net                106          118          304          255
      Foreign currency
       gains/(losses)             (71)          38         (121)         (11)
                          ------------------------- -------------------------

    Net loss for the period    (6,916)      (4,846)     (13,423)      (9,412)

    Deficit, beginning
     of period                (74,136)     (48,761)     (67,629)     (44,195)
                          ------------------------- -------------------------

    Deficit, end of period    (81,052)     (53,607)     (81,052)     (53,607)

    --------------------- ---------------------------------------------------

    Loss per share - basic      (0.03)       (0.03)       (0.07)       (0.06)

    Weighted average
     number of shares
     - basic(*)               198,276      158,638      198,276      157,569

    (*)No fully diluted earnings per share have been disclosed, as these
       would be anti dilutive.

                                                  Azure Dynamics Corporation
                                             (A Development Stage Enterprise)
                                       Consolidated Statements of Cash Flows
                                                        (Stated in Thousands)

                                      For the                   For the
                                   three months               six months
                                   ended June 30             ended June 30
                                    (unaudited)               (unaudited)
                                 2007         2006         2007         2006
    --------------------- ---------------------------------------------------
                                  $            $            $            $

    Cash flows from
     operating activities
      Net loss for the
       period                  (6,916)      (4,846)     (13,423)      (9,412)
      Adjustments for:
      Amortization of
       property and
       equipment and
       other assets               225          193          440          386
      Amortization of
       intangible assets          404          408          741          808
      Unrealized foreign
       currency gains/(losses)    (79)         120          (72)         (34)
      (Gain)/Loss on
       Disposal of Assets         166            -          166            -
      Stock option
       compensation expense       288          214          524          639
                          ------------------------- -------------------------
                               (5,912)      (3,911)     (11,624)      (7,613)

      Changes in non-cash
       working capital items    2,636       (1,110)       2,316       (2,873)
      Movement due to
       exchange impact            146          (43)         164          (39)
                          ------------------------- -------------------------
                                2,782       (1,153)       2,480       (2,912)

                          ------------------------- -------------------------
    Total Cash flows from
     operating activities      (3,130)      (5,064)      (9,144)     (10,525)
                          ------------------------- -------------------------

    Cash flows from
     financing activities
      Issuance of common
       shares (net of costs)        -          673           15        1,290
      Principle payments
       on notes payable            (9)         (14)         (19)         (28)
      Movement due to
       exchange impact           (191)        (113)        (214)        (103)
                          ------------------------- -------------------------
    Total Cash flows from
     financing activities        (200)         546         (218)       1,159
                          ------------------------- -------------------------

    Cash flows from
     investing activities
      Acquisition of
       property and equipment    (508)        (367)        (841)        (601)
      Acquisition of other
       assets                     (56)         (54)         (69)         (69)
      Changes in
       Restricted Cash              -            -         (225)           -
                          ------------------------- -------------------------
    Total Cash flows from
     investing activities        (564)        (421)      (1,135)        (670)
                          ------------------------- -------------------------

    Decrease in cash
     and cash
     equivalents               (3,894)      (4,939)     (10,497)     (10,036)

    Exchange impact on
     cash held in
     foreign currency             149          (89)         152           62

    Cash and cash
     equivalents, beginning
     of period                 20,592       15,775       27,192       20,721

                          ------------------------- -------------------------
    Cash and cash
     equivalents, end
     of period                 16,847       10,747       16,847       10,747
                          ------------------------- -------------------------
                          ------------------------- -------------------------

    Certain reclassifications have been made to the June 30 2006 comparative
    numbers to conform to the current period presentation.

For further information:

For further information: Daniel Renzella, Chief Financial Officer, (781)
932-9009 ext 229, Email:; Steven Glaser,
Vice-President, Corporate Affairs, (416) 367-0220 ext 105, Email:

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